Pandora (NYSE: P) stock declined following reports Thursday afternoon that Spotify will offer free mobile version of its service on mobile devices. Previously, mobile users paid a month fee, but the new version will include ads, according to sources cited by DJ. Reports also say Spotify has reach licensing deals with all three global music companies.

"In our view, it is not the fact Spotify is making yet another run at IP radio Pandora survived the past run and we think the ease of use case of the Pandora platform defends Pandora’s market share. The critical point of Spotify disruption is the Spotify CEO Daniel Ek is defending his content costs and in doing so we think Spotify disrupts Pandora’s upcoming Sound Exchange rate card negotiations," said Tullo.

"Our logic, if a user downloads a performance on iTunes and listens 100 times the cost is roughly $0.013 and the royalty to the artists is likely in the $0.005 to $0.007 range. So on an apple to apples basis, artists are getting significantly more from Spotify and Apple via downloads and file shareing; we think the iTunes radio rate card is marginally better for artists as compared to Pandora. If the Spotify's rate card discussions are accurate, we think 2014 will be a tough year for Pandora from a news flow perspective. We expect the Sound Exchange and the music industry to push hard on making rate concessions because artists may be going into the negotiation from the position that Pandora needs to pay 4x to 10x more per performance," he added.

Tullo thinks Pandora needs a new model allowing artists to drive income. Otherwise, "industry and the artists will make the push back on the IRFA act in 2012 look like an honest dispute among close friends," he said.

Albert Fried & Company an Underweight rating on Pandora with a price target of $23.00

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